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March 27, 2012

AIJ Chief Denies Cheating, Admits Loss Cover-up

Asakawa claimed confidence that funds could be recovered

Speaking publicly for the first time since the investment advisory firm AIJ made headlines for losing client funds, the company president, Kazuhiko Asakawa, said that while he did cover up losses of $1.3 billion, he had never intended to cheat his customers and had been confident that the firm could recover the money.

Reuters reported Tuesday that Asakawa appeared in Tokyo before a parliamentary financial committee, where he apologized for his actions. Losses on equity and bond derivatives claimed much of the $2.4 billion in client assets that AIJ managed, according to Japan's financial regulator, the Financial Services Agency (FSA).

"I want to use this opportunity to apologize to all beneficiaries who believed in our funds and purchased them," Asakawa was quoted saying. In answer to a question from the committee, he replied, "I didn't want to return the money to clients at a loss. I'm deeply sorry, but I had absolutely no intention to cheat our clients from the beginning."

He produced a falsified investment report, he said, by inflating the asset size and investment results to cover up the fact that his fund was running at a loss.

The money came from more than 90 corporate pension funds, most of them on the small side, which had invested with AIJ. The firm handled pensions for about 880,000 people. With its large aging population, Japan is very sensitive to pension issues.

According to the Securities and Exchange Surveillance Commission (SESC), AIJ lost some 109.2 billion yen ($1.32 billion) from equity and bond derivatives trading transactions that took place between 2002 and 2011. During that time, it had accepted the management of approximately 145.8 billion yen, most of it in pension funds.

Last week AIJ was stripped of its registration as a discretionary asset manager. The FSA also ordered a suspension of operations for six months at the Tokyo-based brokerage firm ITM Securities, which sold AIJ's funds and which the FSA said knew of the falsified report.

Hideaki Nishimura, the president of ITM, challenged the FSA assessment of his firm, disclaiming any knowledge of how AIJ handled its funds. "If I have to choose [between being a victim or a wrongdoer] then I would say I am a victim," he was quoted saying. "I had no knowledge of the investment, although with regard to marketing we did wrong."